On Sunday, we looked at how the iEconomy Shifts Labor Trends. I lamented about a a fantastic graphic in the print edition, showing changes in Manufacturing versus Service Jobs from the 1960a; it was nowhere to be found online.

Huzzah! After discreet inquiries, we managed to free the Kraken from its print prison:

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “The Shift from Manufacturing to Service Economy”

A glance at the corporations on this graph suggest that there are not many high-paying jobs in this “service economy”…except for the higher-ups, of course. It’s just that globalization, at the same time it induced a “labor arbitrage” made managerial talent even more scarce!

At least, this is what the corporatists shills would like us to believe: Access to a greater number of managers makes talent rarer!

@MikeDonnelly said: “IBM had 104,241 employees, just missing out on being placed on the left hand side of the chart in yellow. Transitioning from goods producing to business services is how it survived.”

I partially agree, but I think that’s only part of the story. As you can see in the graphic, it’s not services for services sake that matters. Rather it’s the ‘value-added’ from services that helps keep companies like IBM, Apple or Ford competitive. Think Tom Peters and “In Search of Excellence.”

Unfortunately, most service-providing companies don’t fall into this category, as seen in their dead-end job offerings, sub-par hourly wages, and lack of benefits. It marks the transition from a broad middle class to a caste system of labor.

One issue is how the categorization treats software. For example, you show IBM as a services company. How much software do they manufacture?

I’ve been told that when you buy certain kinds of trucks, you get the same engine block and related physical equipment regardless of the engine size. The difference in engines is all in software. The engines don’t have cams anymore. The cam functions are emulated by software. Even when you buy a computer chip you don’t get a chip that natively performs the specifications you are getting. There is a processor inside the chip running microcode that emulates the specification of the device you bought. Buy a different chip and you get the same processor running different microcode.

if somebody bends metal to make a product, that is clearly manufacturing. If they attach a metal widget to make another product that is also manufacturing. But what do you say if they do a little bit of metal bending and write a lot of software to make their products? Is that manufacturing or a service?

Also, it shows AT&T as a manufacturing company in 1960. That was when communications was mostly copper wire, specific devices (e.g., telephones, switchboards, mechanical switches, etc.), and fairly simple services. Now, everything is run through computers, the network can be the same regardless of what service is being provided, and the services are all virtual (i.e., you get something that looks like a dedicated version of what you expect even though under the covers it is a shared system that just seems that way to you).

another observation. manufacturing doesn’t have the number of employees it used to have, mainly because of automation. ex GM had 500k employees back in 1960, built maybe 2 million cars, today they have a fewer employees, and maker a lot more cars. Ford is the same too. and looking at the numbers, i am thinking its a global count of employees. not just US employees, because a lot of the companies under the 2010 banner, don’t have any where the number of US employees as listed.
in the US services took off, because manufacturing was shrinking, and not just because companies exported the jobs (which they did too) but because they automated the work.

IBM is actually a big software company. they just don’t to us. they sell to companies and governments
and they still manufacture lots. its just not sold retail (ex they sell to Apple who uses the parts for the computers etc). and they have a big services business. it just doesn’t sell to us either, but to business and governments.
basically IBM sells to business and governments. not to individuals much any remore

That is a very important point. Producing goods is really not taking up a lot of time these days – with all that automation. I wonder how many combined work hours (including suppliers) went into making a car back then compared to now. People often talk about getting back the manufacturing jobs, but I think they are gone for good. Eventually even slave labor in China will be to expensive compared to robots and then even they will have to do something else.

So how do you export services? Services, although necessary, are basically parasitic. They are overhead. You can’t get rich taking in each other’s wash. Someone has to make the shirt and that person creates value. Trade, transportation, and finance only facilitate the movement of real goods (like the shirt) to consumers. A service economy can only run by borrowing. That inevitably leads to a Minsky moment.

‘Services’ has become way too broad a category. I think we need to rethink our categories.

Manufacturing is going the way of agriculture (several hundred yrs ago). As we all know, manufacturing output (in the US) has continued to rise – while employment has dropped precipitously. Just as happened in agriculture. And with whole new industries arising it’s natural that manufacturing should figure less importantly in the economy overall.

IBM remains one of the leading semiconductor manufacturers in the world. The reason they don’t appear in the rankings is because they’re not categorized as a semiconductor firm (such as Intel, Samsung or TI).

IBM’s Burlington fab in Essex Junction is where semiconductor people from all over the world come to study the latest techniques.

Which isn’t to say (imo) that IBM hasn’t considered the idea of chucking semiconductor manufacturing altogether.

And of IBM’s total global workforce I believe at least a third is now in India?

IBM invented magneto-resistance in hard drives and then super magneto-resistance. Which are now fundamental to all hard drives.

Several yrs ago, IBM sold its entire HD business to Hitachi (I think Hitachi is now looking to get out of the business).

I assumed at the time that IBM sold its HD because its own labs were telling it that hard drives were going to be replaced by new technologies such as flash (which has already occurred to some extent).

HP in the memory business? Well yes, in a way. It invented the stuff and then it’ll take the second-tier Korean semiconductor manufacturer to built it. I assume HP wasn’t going to take this to Samsung and for Samsung’s part they have huge sunk costs in flash. Although Apple has plans to disintermediate Samsung in that market.

How do you export services? It happens all the time every day. Web hosting, consulting, software development, and call centers are all examples of exported services. Provide the service by telecom. Do the work, write the report, email it in, and collect your fee. Those are examples of exported services.

If enough of these average workers don’t make enough in wages to even LIVE HERE any more, who the
f#)& is going to buy all these unnecessary products that they also can’t afford: tvs, stereos, computers, cell phones, jewelry, fashionable clothing, expensive coffee and dinners out on the town, cars, etc. – and just who are we going to be servicing? In other words, without a middle class – you get Zaire.

These corporate idiots are cutting off their own customers and will end up being mere shells of automated equipment making a relative few items for “the haves” while everyone else will have to get by any way they can (or they’ll start doing something about it and you won’t see many wealthy people living in this country any longer because they’ll become “game.”)

What’s interesting about the service companies is the large number of retail companies involved, all of which involve “high touch” in dealing with the enterprises customer base. Those are the types of enterprises which find it difficult to shift a function out of the country. These enterprises have been able to fragment their employee base to hinder unionization, which is the only avenue these folks have in order to negotiate a larger slice of the pie crust’s crumbs than are currently tumbling to the floor for them. Unlike the large factories of old represented in the 1960s snapshot, where most of the workers were located in a handful of facilities thereby facilitating the building of worker bonding, the dispersed retail facilities scattered the workforce over large areas hindering comparison of conditions and problems. Oddly, the rise of social media just may overturn that built-in fragmentation, enabling the retail enterprises’ employees to link together to create a larger voice than they’ve been able to enjoy up to now.

Good examples Stan and examples that show the USA losing that export market as well.

BTW, regarding increasing US manufacturing increases, do you know that McDonald’s was reclassified as a manufacturing company (for tax reasons)? The argument was that they “manufacture” a burger from component parts, bun, patty, et cetera. Don’t know about Wendy’s and Burger King. How much manufacturing is bogus? I can see a law firm “manufacturing” pleadings from component parts, paper and ink.

Stan’s points are all IT, which is a small part of services. The large parts are Wholesale Trade, Retail Trade, Communication and Utilities, which are local in nature. Legal services (in both meanings of the term “service”) are unique to the USA and can’t be exported. Some Medical Services can be performed remotely, as you suggest, but we are losing that market too as Indian radiologists remotely analyze X-rays, MRI’s and the like.

The point remains, if we import most of our hard goods, how do we pay for it? By becoming a third world nation via a race to the bottom in wages?

Via the web. When you purchase something through Amazon, you are displacing a human clerk.

Via self-service. You may be too young to remember why “service stations” we’re called that. Also ATMs, and the self-service checkout lines at the grocery.

Services CAN be exported. I’ll grant you that some types of services are displaced less easily than others (plumbers), but the same holds true for manufacturing.

Now here’s my question: if manufacturing jobs were displaced into services, where will services jobs be displaced to? Not services requiring higher skill levels — people have a pretty limited ability to enhance themselves.

We don’t need lots of manufacturing jobs to export lots of manufacturing products, anymore than we need lots of agricultural or mining jobs to export lots of agricultural or mining products. Automation eliminates the jobs but the output is the same. The real question is what do the people who don’t own a factory or farm or mine produce in order to sell to the people who do. Basically, we have a huge excess of people who don’t do anything useful. If all these people dropped dead tomorrow, manufacturing, agriculture, mining and the truly useful part of the service sector would be mostly unaffected.

For example, we have a huge number of people paid (with federal government money that is ultimately extracted from the productive part of the economy) whose job is to keep other people alive for an extra year or two (and to keep defective babies alive indefinitely). If all these healthcare workers and their zombie patients died tomorrow, the truly productive economy would be unaffected. We also have a huge number of people on disability or old-age pensions, a huge number of people basically doing makework in the FIRE (finance, insurance and real-estate) sector, a huge number of people in the bloated educational and defense complexes. The question is whether a day might come when the productive part of the economy rebels. This would manifest as the ruling class allowing the aforementioned parasitic elements to be wiped out via a Katrina like incompetent response to a pandemic or other catastrophe. And not just in the US. The ruling class may decide to allow the entire world population to be reduced to 500 million at some point in the future. The “coming kill-off” is the term used by the doomers, I belive.

Working people have already lost the class war. The unions are broken, wages dropped to subsistence levels, and all this economic magic has done is concentrate wealth in the hands of a few. This has historically led to unrest, and bloody revolution.
So it goes.

The overriding philosophy of America’s business schools is that manufacturing is a capital and labor intensive, low margin, highly competitive activity that requires a continual large investment in R&D, hence bad, bad, bad. The MBAs apparently never asked themselves how a “post-industrial,” service-based economy running an enormous trade deficit could be sustainable over the long run.

Yes and that is the tragedy of predatory capitalism. In the end it self-destructs like the scorpion on the frog, because it is in its nature. Ford realized that in order to sell millions of his cars, his workers had to be paid a salary that allowed them to purchase one. Will the hedge fund managers realize that it is in their self-interest to stop plundering – and will those who do, just become victims of those who don’t.

@bonzo;

The thing you don’t understand is that all of those “unproductive” people are actually the costumers for a large amount of the products that your so-called “productive” people are producing. If these “unproductive” people disappeared your “truly productive economy” would go into a tail-spin. Broaden your horizon and realize that there are “products” that are not simply material things you can live, drive or play in. Music and sports are completely useless and wasteful non-productive parts of our economy; would anything be missing if they disappeared together with the handicapped and health care workers?

DeDude: music and sports are NOT completely useless. Owners of farms, mines and factories (plus the few workers in these areas) will readily trade their products for music and sports. And likewise for other useful services, such as healthcare provided not for zombies but for productive people, and the useful parts of the educational and defense complexes. The question is why do any of these producers give away their products to those who consume but don’t produce? The idea that the economy would go into a tailspin because we don’t have enough parasites to consume the overproduction is absurd. Farmers who are obsessed with overproducing could just as easily dump their products into the ocean. More likely, farmers would just produce less, leave the excess land fallow and spend more time pheasant hunting. Ditto for miners and factory owners. This is how things have been throughout history (the owners of land and mines historically did NOT try to maximize production) and the current situation is the aberration. Competition forces industry to maximize production, but that can be solved neatly by creating monopolies (via patents and other means), so that manufacturing takes on the characteristics of land. All that is necessary for monopolies in manufacturing is a Congress ready and willing to prostitute itself to the highest bidder.

The question thus boils down to this. Do the owners and productive workers (with the emphasis on owners, since the productive workers are declining in number, which is the whole point of this article) get more joy from producing lots of goods and services to give away to teeming parasites crowded together in the big cities of the world, or from having lots of open space to look out upon from their manor houses. In days of old, the masses were necessary workers. They were crowded into big cities partly for reduced transportation costs but also because the lords didn’t want the peace and quiet of their estates to be contaminated by their pullulating presence. But now the lords don’t need so many workers. So why not exterminate them (or let them be exterminated naturally by a pandemic, as I suggested above, so as to avoid getting one’s hands dirty) and thus free up still more space for even bigger estates for the lords? You don’t get to be a lord by being modest in your demands, you know. Surely there is some tycoon out there whose idea of a decent-sized estate encompasses an entire continent and he won’t rest content until he gets an estate that size and too bad for those who have to be gotten rid of to make that dream possible.

I generally agree with your sentiments (and ‘Union Agitator’)… but it triggered another line of inquiry. I wonder if the “big picture” is to generate sufficient wealth transfer to former third-world economies so as to replace the consumptive losses from a declining U.S. middle class? Looking at population trends, it’s hard to ignore where future (i.e. 20-50 year) growth would be generated.

@bonzo at 11:25pm:

Wow. I don’t often see truly offensive comments on TBP. Reducing the worth of citizens to completely arbitrary categories of “productive” versus “unproductive” is a path down a very destructive slippery-slope of relativism and hate-mongering.

Yes the rich landowners could simply let the land lay fallow and go pheasant hunting. However then they would not have any money to pay for the building and maintenance of their manor houses. The whole economy would sink if the (so-called “productive”) people spend most of their time pheasant hunting. We certainly could dial society back 200 years back, but do you think that those muskets could defend the county from a modern army attack. As society moves on the international competition (and dangers) requires a size of an economy and that cannot be sustained if we “cancel” half of the consumer class by failing to transfer money from the few making physical “products” to the masses that create the demand for those products.

Interesting how you try to define the services you like yourself as something that all these “productive people” desire, whereas things such as a decent society is not desired by “productive people”. I guess Gates is one of those parasitic slackers.

Bonzo, a modest proposal. . . Instead of sitting around waiting for a pandemic to do the dirty work for us, we can just start a government program to give $1,000 dollars for every poor child of a jobless parasite. Then we could use these abundant raw materials to jumpstart a new “GREEN” industry, of the solyent variety to nourish the “producers” and keep them stong so that they can go out every day and create more jobs and produce more truly useful products for everyone. Hell, with enough government scientists and the help of enegy giants like Exxon and BP working on the project, I bet we can find a way to convert these raw materials into fuel to run our engines, and fuel our powerplants and factories. Waste not, want not, in the interest of efficiency and productivity. We could start with the females. . .nobody wants baby girls anyway. Look at India and China, they already have systems in place for this, and we have to keep up with them, right? http://www.economist.com/node/15606229

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